Fleet Management

Economic Watch: Durable Goods Orders, New Home Sales Post Second Straight Drops

February 27, 2018

By Evan Lockridge

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Following strong growth last year, business spending on equipment has fallen for the second straight month, according to a new report, while a separate one shows new home sales in the U.S. have slipped again.

The drop in business investment during January was revealed in a preliminary Commerce Department report released Tuesday. It showed new orders for manufactured durable goods, items designed to last three years or more, fell 3.7% in January from December, the biggest drop in six months.

The decline was led by a 10% falloff in the volatile new transportation orders category. When they are removed, the overall decline was just 0.3%.

Despite the drop in new orders, shipments of durable goods increased 0.2% in January from December, the eighth gain in the past nine months.

When durable goods orders in January are compared to the same time a year earlier, they are 8.9% higher while shipments have gained 8.2%.

What’s troubling is that new orders for nondefense capital goods minus aircraft, a proxy for business investments, fell 0.2% in January following a December drop of 0.6%. This is the first time these orders have declined for two straight months since May 2016.

According to Reuters, this followed numbers that showed business spending on equipment increased at its fastest pace in more than three years in the fourth quarter of 2017, contributing to the economy's 2.6% annualized growth pace during the final three months of the year.

Analysts at BMO Capital Markets said this and other recent reports showed the U.S. economy is a bit softer in the first quarter of the year when compared to the final quarter of 2017, but they noted the period has some seasonal quirkiness and tends to be weaker. This could result in the Federal Reserve holding off on an expected hike in interest rates when the central bank meets next month.

Single Family Home Sales at Slowest Pace since August

The report follows one from the day before that showed sales of newly built, single-family homes fell 7.8% in January to a seasonally adjusted annual rate of 593,000 units, according to the Commerce Department.

This is the second straight monthly drop. It pushed the annual pace down to its lowest level since last August.

“The moderation in new home sales may be attributable to the interest rate environment, which could be causing short-term market volatility,” said National Association of Home Builders Senior Economist Michael Neal. “However, the underlying economic fundamentals for housing demand remain strong and we expect more prospective home buyers to enter the market in 2018.”

Regionally, new home sales rose 15.4% in the Midwest and 1% in the West. Sales decreased 14.2% in the South and 33.3% in the Northeast.

The report on new home sales followed ones from the week before that showed sales of previously owned homes also fell in January due to a shortage of homes on the market and increasing home prices.

Some analysts have also noted that rising interest rates are pushing some home buyers out of the market, especially those at the lower end of the price spectrum.

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